Dollar flat, 10-year yield higher as Fed expected to tighten Crude resumes slide on inventory concerns, falls under $36 Share on Facebook Share on Twitter Treasuries fell, the dollar held near a 10-year high and U.S. stocks rose as investors expected the Federal Reserve to raise interest rates amid a renewed rout in oil that has helped keep inflation pinned below the central bank’s target. The Standard & Poor’s 500 Index clung to a third day of advances as crude fell through $36 a barrel, rekindling concern junk-rated energy companies won’t be able to remain solvent. Global equities extended a rebound as a gauge of credit-market stress stabilized after flashing signs of distress. The rate on the 10-year Treasury note topped 2.3 percent. Currency traders are on alert for a repeat of declines that followed the start of previous tightening cycles on speculation that a boost is already in the dollar’s price. “Everyone anticipates the Fed to raise rates today and everyone now is starting to think it’s going to be a dovish rate rise,� said Andrew Brenner, head of international fixed income for National Alliance Capital Markets. “That’s starting to get built into the market, which kind-of scares me a little bit. If the Fed doesn’t exceed that expectation, the equity markets very well could sell off very severely in the next 24 hours.� Investor appetite for riskier assets rose and tension on global financial markets eased in anticipation that the Fed will end seven years of near-zero interest rates while indicating that any subsequent hikes will be gradual. Barring a shock, investors are about to find out how much stocks are worth in the absence of the policy that has that has helped restore $15 trillion to share values since 2009. Stocks The S&P 500 climbed 0.4 percent at 1:26 p.m. in New York, paring a rise of 0.8 percent as data showing crude inventories in the U.S. rose sparked a 4 percent rout in oil. The index’s rally has trimmed a loss in December to 1.2 percent and left the gauge flat for the year. History suggests two immediate consequences from tightening: higher volatility and lower valuations, meaning earnings and ultimately the economy will be left to drive prices from here. The Stoxx Europe 600 rose 0.2 percent Wednesday, after its strongest rebound in two months. Miners rose the most among industry groups, while Vestas Wind Systems A/S led an advance in energy producers. While Europe’s shares have dropped in the weeks after a Fed interest-rate increase, losses have either eased or completely reversed in the three months following the central bank’s move, data compiled by Bloomberg going back to 1987 show. Currencies The Bloomberg Dollar Spot Index, a gauge of the U.S. currency against 10 major peers, was little changed Wednesday after a four-day advance. It’s climbed more than 8 percent this year as anticipation of tighter Fed policy fueled gains. “This has been one of the most anticipated Fed meetings in modern history, but some trading volatility could still be expected as market participants interpret and misinterpret the FOMC language,� Jason Wong, a currency strategist in Wellington at Bank of New Zealand Ltd., said in an e-mail to clients. Bonds Traders see a 76 percent probability that the Fed will raise its benchmark rate, up from 66 percent a month ago, according to futures data compiled by Bloomberg. The calculation assumes the effective fed funds rate averages 0.375 percent after the first increase. Fed officials have signaled a gradual pace of increases after liftoff. Their median estimate for the Fed target at the end of 2016 was 1.375 percent in September, suggesting the potential for four quarter-percentage-point increases next year. Trading in swaps indicates the fed funds effective rate will fall short of that, averaging 0.76 percent in a year and 1.26 percent in two years, according to data compiled by Bloomberg. The Markit iTraxx Europe Index of credit-default swaps on investment-grade companies fell four basis points to 78 basis points. The non-investment grade Markit iTraxx Europe Crossover Index dropped 15 basis points to 324 basis points. Both gauges jumped to the highest in more than two months on Monday. Emerging Markets The MSCI Emerging Markets Index gained 1.4 percent as investors speculated developing-nation shares have fallen too low in the run-up to the Fed decision. The gauge trades at 11 times the projected earnings of its members, below the average price-to-earnings ratio in the past 10 years. Brazil’s real and stocks posted the biggest drops among major markets as Fitch Ratings cut the country’s credit grade, handing Latin America’s biggest economy a second junk rating that could force many institutional investors to dump the country’s assets. Commodities The Bloomberg Commodity Index fell for a fifth day as oil and natural gas prices dropped. Oil extended losses after falling from the highest price in a week amid speculation that a U.S. deal to end a 40-year ban on crude exports will fail to alleviate the nation’s supply glut and weekly data showed an increase in inventories. West Texas Intermediate crude slid 4.3 percent to $35.77 a barrel. U.S. natural gas was little changed after settling at the lowest price since March 1999 amid forecasts that a record-breaking warm spell will spill into January. Futures for next month were $1.826 per million British thermal units on Nymex, after closing at $1.822 on Tuesday.

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